Castle Biosciences, Inc.

Good afternoon and welcome to Household Biosciences' second quarter 2023 conference call. As a reminder, today's call is being recorded. We will begin today's call with opening remarks and introductions, followed by a question and answer session. I would like to turn the call over to Camilla Zuccolone, Vice President, Investor Relations and Corporate Affairs.

Thank you, Operator. Good afternoon, everyone. Welcome to CASEL Biosciences' second quarter 2023 financial results conference call. Joining me today is CASEL's founder, president, and chief executive officer, Derek Matzl, and chief financial officer, Frank Stokes. Information recorded on this call speaks only as of today, August 2nd, 2023. Therefore, if you are listening to the replay or reading the transcript of this call, any time-sensitive information may no longer be accurate. A recording of today's call will be available on the investor relations page of the company's website for approximately three weeks. Before we begin, I would like to remind you that some of the statements made today will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our financial outlook, PAM, and similar items referenced in our earnings release issued today. and statements containing projections regarding future events or our future financial or operational performance, including our anticipated 2023 total revenue and our 2023 to 2025 outlook, our expectations regarding reimbursement for our products, and the impact of our investments in growth initiatives and expanded commercial teams. Forward-looking statements are based upon current expectations and involve inherent risks and uncertainties. And there can be no assurances that the results contemplated in these statements will be realized. A number of factors and risks could cause actual results to differ materially from those contained in these forward-looking statements. These factors and other risks and uncertainties are described in detail in the company's annual report on Form 10-K for the year ended December 31, 2023, under the heading Risk Factors, and in the company's other documents and reports filed with the Securities and Exchange Commission. These forward-looking statements speak only as of today, and we assume no obligation to update or revise these forward-looking statements as circumstances change. In addition, some of the information discussed today includes non-GAAP financial measures such as adjusted revenue, adjusted growth margin, and adjusted EBITDA that have not been calculated in accordance with generally accepted accounting principles in the United States, or GAAP. These non-GAAP items should be used in addition to and not as a substitute for any GAAP results. We believe these metrics provide useful supplemental information in assessing our revenue and operating performance. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are presented in the tables at the end of our earnings release issued earlier today, which has been posted on the investor relations page of the company's website. I will now turn the call over to Derek.

Thank you, Camilla, and good afternoon, everyone. As you saw from our announcement a few minutes ago, Castle Bioscience has delivered yet another strong quarter, growing revenue by 44% and total test report volume by 52% compared to the second quarter of 2022. Based on strong first half execution and confidence in our business, coupled with our expectations for the second half of 2023, we are raising our full year revenue guidance and currently expect to deliver at least $180 million, an increase of at least 31% over 2022. Before I get into the quarterly highlights, let me address some of the excitement around our DecisionDx SCC test. First, let's talk about coverage. We were reviewed by the Medicare contractor Novitas in the first quarter of 2022 and received coverage since April of 2022. Separately, Novitas published on July 27, 2023, a proposed LCD entitled Genetic Testing for Oncology. This proposed LCD attempts to encompass genetic tests that are used in oncology and includes language that proposes non-coverage for decision DXSCC, among a number of other laboratory tests. The common period closes on September 9, 2023. Separately, On June 8, 2023, both Palmetto, Moldeix, and Meridian posted proposed LCDs recommending non-coverage for DecisionDx SCC. A common period for these Medicare contractors for the proposed LCDs ended on July 22, 2023. Second, we were extremely pleased to see that the Division of New Technology of CMS completed its review over application for advanced diagnostic laboratory test status also known as ADLT status. As we expected, we were granted ADLT status effective June 30th, 2023. There are four criteria that need to be met to achieve ADLT status. One of the criteria means that we have proven that our decision DXSCC test yields a test result that predicts the probability of the specific SCC patient developing metastasis. That is, our test works. Another criteria means that we've also proven that our DecisionDX SCC test provides new clinical diagnostic information that cannot be obtained from any other test or combination of tests. That is, our test is independent of all other clinical pathologic risk factors or any other test or combination of tests that predict metastasis. We view this incredible achievement as a mark of our mission to develop innovative tests that improve patient care. And in looking at tests that have received ADLT status, Castle has five tests that have been designated as ADLTs. Stated differently, one-third of all ADLTs are offered by us, Castle Biosciences, clearly demonstrating that we do develop innovative tests that improve patient care beyond what is clinically available. Now, I mention ADLT status because while it is not used for the purposes of coverage through a local Medicare contractor, meeting these two criteria that I mentioned lays out some of the positions that we have and will be communicating as a release to the analyses contained in the two aforementioned proposed LCDs. Separately, as part of our comments to MoldyX and our upcoming comments to Novitas, we are very pleased to present results from our recently completed large multi-center cohort study that included analyses into the value of our tests to identify patients who are eligible for adjuvant radiation therapy under current NCCN guidelines. Specifically, our question was, what value can we provide in ruling in or ruling out adjuvant radiation therapy to this high-risk population? I cannot emphasize enough the clinical importance of this question. There are three significant areas to think about. The first is from the perspective of the known accuracy limitations if one relies upon clinical and pathologic staging features alone in informing which eligible patients may benefit and which may not. The second is does our test provide an indication of not just who may have a high enough risk of metastasis to warrant consideration of adjuvant therapy, but can we find patients whose outcomes could be improved with adjuvant radiation therapy? And finally, the healthcare cost impact of adjuvant radiation therapy is enormous. In fact, our data shows that patients who receive adjuvant radiation therapy with their highest risk class 2B test result have a roughly 50% reduction in their five-year metastasis rate compared to matched patients who did not receive adjuvant radiation therapy but also had a class 2B test result. In creating a weighted average cost using data from both IQVIA as well as published cost of treatment data, it looks like adjuvant radiation therapy runs around $60,000 per patient, not to mention the potential long-term complications if the patient was over-treated in the first place. This cost data is important when you recognize that the majority of test results are Class I or Class IIa, and these patients did not see a treatment benefit from adjuvant radiation therapy. We expect the study to be published in the near future and look forward to sharing the results in greater detail with our clinician customers, our Medicare contractors, and, of course, you. Well, there are clearly some current unknowns regarding future coverage. We identified a significant unmet clinical need. We were successful in developing and validating not only analytic validity, clinical validity, and clinical utility for decision DXSCC test, but can also now see outcome differences in patients who receive adjuvant radiation therapy. Given that we believe there are roughly 200,000 patients diagnosed each year with high-risk SCC and who are eligible for adjuvant radiation therapy per current NCCN guidelines, the potential impact on improved outcomes and reduced healthcare costs is tremendous. Now, let me take you through the remaining execution and strategy highlights in the quarter, and then Frank will provide highlights for the period, including with your questions. Let's start with our core dermatology business. For DecisionDx melanoma and DecisionDx SCC combined, test volume was 11,278, growth of 33% year over year, and 13% from the prior quarter. We continue to see new clinicians order our tests for the very first time. with approximately 567 new ordering clinicians and more than 2,060 total ordering clinicians for all three dermatologic tests during the quarter. For decision DX melanoma, we delivered 8,597 test reports in the second quarter, an increase of 21% over the second quarter of 2022. We continue to believe the most significant drivers of our strong growth the clinical impact our tests can contribute to the management of melanoma and strong evidence supporting our tests coupled with our prior commercial expansion investments intended to educate our customer base for decision dx scc we delivered 2681 test reports in the second quarter an increase of 99 over the second quarter of 2022 as with our growth in decision dx melanoma We believe that our strong growth and volume for DecisionDx SCC is due in large part to the combination of the high unmet clinical need for SCC coupled with the value our test provides clinicians and their patients. As you recall, a pillar of our growth strategy is a continued development of evidence to support clinical use of our tests, including impacting outcomes. Two key studies were published in the second quarter. I'm going to focus my remarks on just one of them. That is the study data related to our collaboration with the National Cancer Institute's SEER program registries published in JCO Precision Oncology. We are very pleased with this large unselected patient population study and that the real world data showed testing with DecisionDx melanoma provided significant prognostic information regarding survival outcomes. Specifically, patients who were clinically tested with DecisionDx melanoma had an associated lower melanoma-specific and overall mortality relative to those patients who did not have the benefit of DecisionDx melanoma testing. That is, they were in the untested group. And that is, they lived longer. In fact, DecisionDx melanoma testing was associated with a 29% lower melanoma-specific mortality and a 17% lower overall mortality relative to patients who did not receive DecisionDx melanoma testing. As you would expect, we will be sharing the full publication with our clinician customers as well as providing them to the NCC and melanoma panel. Now, let's turn to our gastroenterology franchise. During the quarter, we delivered 1,447 tissue cipher test reports compared to 352 in the second quarter of 2022. We also announced during the quarter new data demonstrating the value of our tissue cipher test in providing objective risk stratification information that can inform improved management decisions for patients with Barrett's esophagus. Additionally, TissueCypher was selected as the winner of the Best Use of Artificial Intelligence in Healthcare Award in the 7th Annual MedTech Breakthrough Awards Program. As you will recall, we acquired TissueCypher from Cernostics in December 2021, giving us a leading risk stratification test designed to predict future development of esophageal cancer in patients with Barrett's esophagus. Barrett's esophagus is the only known risk factor for the development of esophageal cancer, one of the fastest growing cancers in the US, with a five-year survival rate of less than 20%. Since the acquisition, we have made considerable progress with our integration efforts and process improvements. We moved into our new laboratory in Pittsburgh during the second quarter of 2023, and have seen strong adoption from the gastroenterology community, so much so that our orders have outpaced our forecasts and current operational capacity. As such, we left it in July, temporarily paused, accepting additional clinic orders for the test in order to bring our process improvements and additional instrumentation and personnel online. We are currently working through these efforts and believe that we will be able to begin accepting new orders prior to the end of the third quarter. Despite this temporary pause in ordering, we expect report volume for the second half of 2023 to increase compared to the first half. Turning to our mental health franchise, we delivered 2,681 ID Gen X test reports in the second quarter of 2023, up from 827 a year ago, and up 25% from the prior quarter. As a reminder, during the second quarter of 2022, CASEL only delivered test reports from April 26th, the date we acquired the test, through June 30th. We continue to be pleased with the momentum we are seeing thus far. In fact, we recently announced real-world study data demonstrating that the use of ideogenics to guide medication management can significantly improve medication response and remission rates in patients diagnosed with moderate to severe depression compared to current standard of care treatments. This data was consistent with our previously published randomized controlled trial. Additionally, ECRI, an independent nonprofit organization improving the safety, quality, and cost-effectiveness of care across all healthcare settings, recently concluded its genetic test assessment of IgE genetics with a four out of five rating. As commercial payers utilize ECRI evaluations to assist them in making coverage decisions, we believe this is another important metric to encourage payers to recognize the benefits of our IgE genetics test. We believe our IgE genetics testing solution has the potential to accelerate our impact on patient care in an area of high unmet clinical need by offering incremental value to patients and clinicians over the standard trial and error approach. With this comprehensive genetic test analysis to help clinicians match patients with the right medication, including identification of drug-drug interactions and drug-gene interactions, with lifestyle factors to improve medication response and remission rates, we feel IGNX offers a truly compelling and personalized benefit for mental health treatment. I will now turn the call over to Frank, who will provide details relating to our financial results and outlook.